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Constellation Brands has much to celebrate. It is currently home to the most popular beer in the US. In May, Modelo Especial surpassed Bud Light from Anheuser-Busch InBev as the best-selling beer in America.
A collaboration with transgender TikTok personality Dylan Mulvaney led to a conservative backlash and decreased demand for Bud Light. On the other hand, Modelo’s popularity has been steadily increasing. This rise in popularity highlights the growing cultural influence of Hispanic consumers. Modelo Especial, a Pilsner served in a wide, gold-topped bottle, has become a favorite among beer enthusiasts.
The success of Mexican beers, including Corona and Pacifico, has led to a 12% year-on-year increase in sales for Constellation’s beer business in the three months through August. Shipments have also seen a nearly 9% rise. In contrast, competitors have relied on price increases to boost their sales.
Mexican beer brands are helping Constellation defy the declining trend in US beer consumption. According to drinks market consultancy IWSR, total beer volumes have been decreasing at a compound annual growth rate of 2% between 2017 and 2022, and this trend is expected to continue until 2027.
The popularity of Mexican beer brands has contributed to Constellation shares trading at a premium compared to its competitors. Currently, the company’s shares trade at over 20 times forward earnings, while rival brewers typically have a multiple of 12 to 16 times.
However, Constellation faces challenges in its wine and spirits business, which accounts for about a fifth of its total sales and 16% of operating profits. Softer demand has resulted in a 14% decline in sales for the division in the August quarter.
Additionally, Constellation’s investment in Canadian marijuana grower Canopy Growth has been disappointing. The company took a $1.1 billion impairment on its stake last year and has written down another $136 million this year. Despite these setbacks, Constellation’s strong performance in the beer market continues to shine bright.
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